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Rpot N.. 9857

PROJFCT COMPLETION REPORT

LAO PEOPLE'S DEMOCRATIC kEPUBTLIC

AGRICULTURAL PRODUCTION SUPPORT PROJECT(CREDIT 1395-LA)

AUGUST 22, 1991

Agriculture Operations DivisionCountry Department IIAsia Regional Office

This document has a restricted distribution and may be used bv recipients oniv in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENT(Kip per US$)

Official PrivateYear Official Commercial Market Remittance

1983 (Appraisal) 10 35 140 1061984 10 35 250 1081985 10 95 400 1891986 10 95 410 2701987 10 95 380 3801988 400 400 400 4001989 550 550 550 5501990 (Completion) 700 700 700 700

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

APSP - Agricultural Production Support ProjectARDP - Agricultural Rehabilitation and Development ProjectDCA - Development Credit AgreementERR - Economic Rate of ReturnIFAD - International Fund for Agricultural DevelopmentMOA - Ministry of AgricultureOPEC - Organization of Petroleum Exporting CountriesPCR - Project Completion ReportRMB - Regional Mission, BangkokSAR - Staff Appraisal ReportSPC - State Planning CommitteeTA - Technical AssistanceUADP - Upland Agriculture Development ProjectUNDP - United Nations Development Programme

FISCAL YEAR (LAO PDR)

January 1 - December 31

WEIGHTS AND MEASURES

Metric System

you OaCIAL U.S ONLYTMH WORLD BANK

Washington, D.C. 20433U.S.A.

OUmk al OitorC.waOpwauimw Ealktwm

August 26, 1991

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on LAO PEOPLE'S DEMOCRATICREPUBLIC - Agricultural Production Support Project(Credit 1395-LA) _

Attached, for information, is a copy of a report entitled"Project Completion Report on Lao People's Democratic Republic:Agricultural Production Support Project (Credit 1395-LA)" preparedby the Asia Regional Office. No audit of this project has been madeby the Operations Evaluation Department at this time.

Attachment

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

FOR OFFICIAL USE ONLYPROJECT COMPLETION REPORT

LAO PEOPLE'S ?EMOCRATIC REPUBLIC

AGRICULTURAL PRODUCTION SUPPORT PROJECT(Credit 1395-IA)

Table of Contents

PASO No.

PREFACE . .. .. . . . . . .. ........ .............. 1EVALUATION SUMSARY ..... . . . .. . .. ill

PART I

1. Project Identity.. . . . . . . . . . . . .2. Background . . . . .. .. . . . . . . .. 13. Project Objectives and Description . . . . . . . . . . . 24. Project Design and Organization . . . . . . . . . . . . 35. Project Implementation . . 4 . . . . . . . . . 46. Project Results 7. . . . . . .. . . 77. Project Sustainabi lity . ..0........... 98. Bank Performance . . . . . . . . . . . . . . . . * . . 99. Borrower Performancrmance . ........ 1010. Project Relationship . . . . . . . . . . . . . . . . . . 1111. Consulting Services . . . . . . . . . . . . . . . . . 1112. Project Documentation and Data . . . . . . . 12

PART II

1. Review by the Borrower .e.r.. * . . ................ . 13

P.UT III

1 Related Bank Creditse.t............. 152. Project Timetable . . .. . . . . 163. Credit Disbursements . . . . . . . . . . . . . 174. Project Implementation . . . . . . . . . . . . 185. Project Costs and Financing .. . . . . . . .. . 21

A. Project Costs . . . . ..... . 21B. Project Financing . . . . . . . . . . 22

6. Project Results i.............. 22A. Direct Benefits .. .. . . 22B. Economic Impact . . . . . . . . . . . 23C. Financial Impact . . . . . . . . . . . 23D. Studies . . . . a . . . . . . . . . 24

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

7. Status of Cov-nant. . . ... . . . . . ... . . . 248. Use of Bank Resources ... .. .. .. ... . 25

A. Staff Inputs . . . . . . . . .. . . . . . . . . 25B. C oat . . . . . . . . . . . . . . . . . . . 26C. Costs . . . . . . . . . . . . . . . 26

AX 1

Economic Re-Evaluation of Sugar Production andProcessing Component . . . . . . . . . . . . . . . . . . . 27

TABLE I . . . . . . f . . . . . . . . . . 30

MAPS I8RD 17123RIBRD 17124R

PROJECT COMPLETION REPORT

LAO PEOPLE'S DEMOCRATIC REPUBLIC

AGRICULTURAL PRODUCTION SUPPORT PROJECT(Credit 1395-LA)

Preface

This is the Project Completion Report (PCR) of the AgriculturalProduction Support Project (APSP) in Laos. for which Credit No. 1395-LA in theamount of SDR 5.8 million was approved on June 28, 1983. The credit was closedon December 31, 1989. two and a half years behind schedule. The finaldisbursement was made on March 12, 1990 and an undisbursed balance ofSDR 10,525.19 wva cancelled.

The PCR is based on a draft report by an PAO/World Bank CooperativeProgram mission that visited Laos in February 1990. It incorporates informationobtained from the Staff Appraisal Report (Report No. 4543-LA) dated June 7. 1983;the Development Credit Agreement dated January 10, 1984; the Bank's SupervisionReports and project files; field visits to selected project sites; dlscussionswith the borrower's project staff; and interviews with UNDP, FAO, IPAD and WorldBank staff associated with the project.

The Asia Regional Office wishes to express its appreciation to theofficials of the Borrower for their valuable assistance to the PCR mission.

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PROJECT COMPLETION REPORT

LAO PEOPLE'S DEMOCRATIC REPUBLIC

AGRICULTURAL PRODUCTION SUPPORT PROJECT(Credlt 1395-LA)

gvaluation Sumarv

Obiectives

1. The prime objective of the project was to increase agriculturalproduction-particularly that of rice, animal feed and sugar--and thereby toreduce imports. This was to be achieved by: (i) expansion of irrigated area bysome 3.600 4a (17 small-scale schemes) mainly for rice; increased use of farminpute for rice, feel crops and sugarcane; and development of livestock feed and3ugar processing facilities; (ii) strengthening of agricultural supportinfrastructure including warehousing and district road maintenance; and (iii)improvement of institutional capacity and operating procedures for procurement,inventory control, planning, budgeting and accounting. The project was based ona sector lending approach, with financing of a three-year time slice of theGovernment's priority agricultural development program by IDA, IFAD, OPEC andUNDP on a parallel basis.

Imolementation Exoerience

2. Actual implementation took almost six years. The IDA Credit wasclosed on December 31, 1989, two and a half years behind schedule, and was almostfully disbursed (SDR 5.8 million or US$7.15 million). The delay was causedmainly by the Government's protrected decision-making processes and a very weakinstitutional base. This was further aggravated by a conceptual change in theirrigation component and problems encountered in the recruitment and quality oftechnical assistance.

3. At appraisal, irrigation construction, for which adequate feasibilitystudies had not been done, was limited to Vientiane province. Duringimplementation, the Government wished to inclade four other provinces, and thischange delayed implementation by more than two years. The weak managementcapacity of the Ministry of Agriculture (MOA), which was diluted further duringthe project period because of decentralization of responsibilities to theprovinces, was another factor. By early 1990, construction work was completedon some 11 schemes with a total target area of 5.255 ha and 4,300 ha for the wetand dry seasons, respectively, and about 900 ha and 820 ha had been added to thewet and dry season irrigated areas, respectively. However, the quality ofirrigation works in some schemes is poor and tertiary network construction byfarmers has not happened.

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4. The rice intensification program was delayed since the Governmentpolicy until 1985 was to discourage the use of chemical fertilizers. About 2.100and 1.700 tons of fertilizers (about 25 percent lower than the appraisal target)along with other inputs and equipment were imported under the project in 19M8 and1989, respectively. Tlese were distributed to farmers without an effectiveextension service and systematic monitoring and evaluation. The upland cropprogram for maize was very successful, with a doubling of area from 1,550 ha in1967 to 3.050 ha in 1989 (compared to the appraisal target of 1,600 ha). and forsoyabeans and leucaena, but disappointing for cassava due to low demand from thecountry's only feedmill (Tha Ngone) and insufficient drying facilities. Forsugarcane, the planted area so far (about 145 ha) is low, mainly because theconstruction of the sugar mill was delayed by about three years. The delay wasinitially due to the Government's doubts about the component and later mainly dueto institutional coordination problems and a lengthy process of preparation oftechnical specifications and bid documents. The plant was finally installed in1990 with an annual capacity of 2,000 tons (1,000 tons at appraisal) ofplantation white sugar and started operation in 1991.

5. For technical assistance (TA). the project was to employ sevenspecialists. Only two (warehouse management and sugarcane experts) wererecruited and the performance of the former was not regarded satisfactory by allconcerned. The Government did not consider expatriate skills in other areasnecessary and preferred to train local people.

Results

6. Overall, the -:oject was marginally satisfactory. Results of five ofthe six physical components, accounting for about 70 percent of projectinvestments, were mixed; for the sixth, viz, irrigation development, a judgementon the results is premature since the schemes were in various stages ofdevelopment at project completion. The institutional impact of the project wasnegligible.

7. The economic rate of return (ERR) for the sugar processing componen.is about 10 percent. It is lower than at appraisal (19 percent) principallybecause economic prices are lower than at appraisal. For the other compo-nents,available data is not sufficient for a detaeled economic reevaluation. However,the agricultural roads component (rehabilita.ion/construction and maintenance)is considered to have provided a significant stimulus to development in the areasserved. Warehouses were satisfactorily constructed and utilized. The uplandcrop and rice intensification programs are likely to have a benefit/cost ratiogreater than 1.0 (1.6 and 1.9, respectively, at appraisal), though there weresignificant problems with the latter. Essential feed ingredients were importedfor the Tha Ngone feedmill and its capability strengthened with the addition ofsoyabean, ipil-ipil and corn cob processing facilities and cassava drying slabs,but its major problem in 1989 and 1990 was competition from the imported Thaifeed, which had captured about 50 percent of the market (about 6,000 tons) as itwas perceived by the end users to be of higher quality.

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Sust-lain4b1ts

8. Project sustainibility at this stage is uncertain. It can be assuredif certain actions ar- undertaken. For the irrigation component, it is essentialthat the technical and economic viability of each scheme be assessed beforeadditional investments are undertaken. Greater farmer involvement in tertiarycanal construction and gradual takeover of scheme operation, which the newGovernment policy supports, are also necessary. For the sugar mill, an adequatesupply of cane is critical. This will largely depend on prices offered for cane.which in turn, will depend on officient and cost-effective management and successin obtaining working capital requirements. For the rural roads component, anadequate recurrent budget should continue to be provided to the project--established maintenance units. To remain profitable, the Tha Ngone feedmill hasto make a strong marketing effort to improve or at least hold its share in thehigh-value rations market while, at the same time, expanding its sales of low-cost rations.

Findings and Lessons Learned

- While changes in macro policies towards liberalization and marketorientation are potentially beneficial in the long-term, the short-term impact on indIvidual enterprises can be adverse in the absenceof plans for their survival in the adjustment phase (PCR, para. 2.3).

- fHurried project processing without adequate preparation (such as forthe irrigation component) is likely to create serious problems duringproject implementation (PCR. paras. 4.2, 5.4 and 5.5).

- The implementation period proposed should be longer, or.alternatiwely, an appropriately modest project scale and range ofcomponents should be adopted, in keeping with the implementationcapacity of the borrower; in particular, the concept of time-slicefunding is inappropriate when institutional problems are severe (PCR,paras. 4.1, 5.2, 5.3 and 8.1).

- The contracting of technical assistance services, if these have beenidentifiid as critica_ to projeat success, should be ensured (PCR,paras. 5.10 and 11.1).

- Intensive supervision is necessary at all stages, when countryconditions are as difficult as ini Laos, and supervision from fioldoffices is beneficial as it facilitates closer and more frequentcontact with the implementing agencies (PCR, para. 8.2).

- Decentralization, if not accompanied by appropriate support measures,can create considerable dislocation and uncertainty (PCR, para. 9.3).

PROJECT COMPLETION REPORT

LAO PEOPLE'S DEMOCRATIC REPUBLIC

AGRICULTURAL PRODUCTION SUPPORT PROJECT(Credit 1395-LAb

PART I

1. Proiect Identity

Project lame s Agricultural Production Support ProjectCredit No. s 1395-LARVP Unit s Asia RegionCountry s LaosSector I AgricultureSubsectore s Irrigation. Agri. Support Services & Agro-industry

2. BDcktr_ound

2.1 At the time of project appraisal in 1983, the Government's primaryobjective for the agricultural sector was to complete the process of securingfood self-sufficiency, which had been the focus of development policy since theestablishment of the Republic in 1975. In order to attain this objective, theGovernment str^tegy included four major components: (i) organization ofproduction activities on a cooperative basis; (ii) expansion of irrigated riceland; (iii) development of roads and agricultural support services; and(iv) provision of incentives for production.

2.2 The Agricultural Production Support Project (APSP) vas IDA's fourthagricultural lending operation in Laos, following the First, Second and ThirdAgricultural Rehabilitation and Development Projects (ARDP I. II and III). Theseagricultural rehabilitation projects were intended to support the Government'sfood self-sufficiency objectives and formed an important part of the nationalrural development effort. ARDP I (Cr.760-LA), implemented during 1978-86,supported irrigation development for rice production as well as pigultiplication. ARDP II (Cr.924-LA) during 1979-87 was intended to support thedevelopment of improved rice seed and foodgrain production. ARDP III(Cr.1021-LA) during 1980-89 concentrated on reducing post-harvest losses byproviding improved rice milling, storage and transport, and coffee processing.The AlPSP, the subject of this report, was to expand the irrigation developmentprogram implemented under the ARDP I and also to support other priorityagricultural development activities in which the Government was already involved.

2.3 Implementation of all these projects was necessarily carried out alonglines consistent with the Government's policy of transforming the economy alongsocialist lines, through centralization of planning and management of allsignificant economic activities. In 1985/86, however, sweeping economic reformswere brought in. The Government introduced the New System of EconomicManagement, which is aimed at creating a market economy and dismantlingcentralized planning and controls. Key institutional reforms included the

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decentralization of authority to give financial and managerial autonomy toparastatals and to provincial agencies, and the elimination of central agencies'production responsibilities. Subsequently, the collectivization of farm holdingswas a*andoned in 1988. Although these reforms are expected to promote efficientgrowth of the Lao PDR economy in the long run, they have generated considerableuncertainty and their short-term impact on the enterprisoe supported or createdunder the above projects has been adverse in the absence of a plan for theirsurvival in the transition phase. The adverse impact has been principally on thofinancial side as these enterprises, including the sugar mill and feedmillsupported under the APSP. are no longer financed through the Government budgetand are also unable or unwilling to borrcw for their investment and workingcapital requirements from the emerging commercial banking system due to theextremely high bank interest rates (35 to 40 percent) and the banks havinglimited resources. Managerial problems and a lack of direction have also emergedas the supervision and control of these enterprises by the Government hasweakened, technical assistance has been discontinued after completion of theabove projects, and the future ownership and management structure remainuncertain. Competition from the private sector (imported Thai feedstuff in thecase of the feedmill supported under the APSP) is another unforeseen phenomenonwhich the state-owned enterprises are having difficulty facing. Even for theGovernment agencies, the decentralization of responsibilities to the provinceshas created considerable dislocation (see further para. 9.3).

3. Pr<1ect Objectives and Descrigtion

3.1 The prime objective of the project was to increase agriculturalproduction-particularly that of rice, animal feed and sugar--and thereby toreduce imports. This was to be achieved by: (a) expansion of agriculturalproduction capacity; (b) strengthening of the existing agricultural supportinfrastructure; and (c) improvement in institutional capacities and operatingprocedures for procurement, inventory control, planning, budgeting, accountinga-d project management.

3.2 As appraised, the project was to finance:

(a) development of small-scale pump and gravity-fed irrigation schemes(100 to 300 ha each) over some 3,600 ha, and repair and maintenanceof some 1,200 existing small pumps in Vientiane, Khammouane,Savannakhet, Saravane and Champassak provinces;

(b) agricultural inputs and equipment for: (i) the ongoing riceintensification program, and (ii) upland crops including feed cropsand sugarcane;

(c) additional material and equipment to support the development ofresearch and extension under the Integrated Agricultural DevelopmentProject funded by UNDP;

(d) development of three pilot units for the improved maintenance ofagricultural feeder roads in Vientiane province;

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(e) provision of essential imported fend ingredients and equipment for theTha Ngone feedmill, in order to support pig and poultry breedimprovement and multiplication;

(f) construction of a small sugar mill with an annual output capacity of1,000 tons of plantation white sugart

(g) construction of eight new warehouses (800 to 1,250 sq. m.) andrehabilitation of several large existing warehouses, for storage ofagricultural inputs, spare parts and construction materials;

(h) technical assistance for: (a) budget analysis and work programing;(b) warehouse management; (c) sugar production and resooarch;(d) standardization of equipment and supply; (e) computer programingfor warehouse operation and inventory control; (f) procurement; and(g) auditing and accounting; and

(i) study tours and fellowships to develop expertise in agriculturalresearch and production, and in administration.

3.3 The iroject, phased over a three-year period, was estimated to costUS$24.8 million. The foreign exchange component, estimated at US$17.6 million,was to be cofinanced by IDA, IFAD, OPEC and UNDP on a parallel basis (see Part_II, Section 5. Project Costs and Financing). IDA funds were to be disbursedagainst the three subprojects covering livestock feed processing, sugarcaneproduction and processing, and warehousing and inventory support.

4. Project Desian and Organization

4.1 The concept of providing support for a three-year time slice of theGovernment's priority agricultural development programs was developed duringproject preparation by IDA in 1982. The project, through TA support, was intendedto alleviate institutional, financial and technical constraints, wV.ich hadseriously delayed the pace of implementation achieved by earlier projects(ARDP I, II & III). The concept was generally shared and understood by both theBank and the Government. It appears, however, that the scope and scale of theproject (6 discrete components in 5 different provinces) were too wide, given thelimited proposed project period, coordination problems in parallel financing fromseveral sources, and the Government's weak implementing capacity.

4.2 The level of project preparation for individual compopents, judgingfrom working papers available in the files, was generally sufficient except forthe irrigation component, which did not meet the Bank's normal appraisalrequirements (i.e. adequate feasibility study). The Bank proceeded with projectprocessing by including appropriate requirements in the Development CreditAgreement (DCA). The appraisal team adopted a sector lending approach,particularly for appraising the irrigation component, on the assumption that theIrrigation Department was capable of satisfying the DCA requirements (see para.5.4). Project processing was very much hurried: the elapsed time betweenappraisal and Board approval was only four months. The reason for this was the

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Government's desire to utilize FY83 IDA and IFAD funds earmarked for Laos.However, there was a long interval between approval and credit signature (6kmonths) and between signature and credit effectiveness (8 months), since theGovernment decided to wait for the approval of the project by IFAD and OPEC Fundbefore signing the credit agreement and there were delays in meeting theconditions of effectiveness, particularly those relating to the establishment ofthe Special Account and execution and delivery of the two UNDP Project Documentsassociated with the project.

4.3 On the question of project organization and management, the roles andresponsibilities of the implementing agencies were relatively well definedcompared with the preceding projects (ARDP I, II & III). There were doubtaexpressed in the Bank regarding the capacity of the State Planning Committee(SPC) as a central coordinating agency for the project. However, the SPCfulfilled this role during project implementation until it was absorbed by theMinistry of Finance in 1988.

4.4 The project included measures to improve procurement by designatingthe Ministry of Materials Supply as the central agency responsible and providingit with TA support. Unfortunately, this arrangement did not materialize, due tothe dissolution of the concerned Ministry and non-recruitment of the TAspecialists. Changes in project implementation responsibility and the dissolu-tion of SPC occurred towards the end of the project period. Further, thedecentralization of responsibilities to the provinces weakened central agencies(see para. 9.3).

5. Project Imalementation

5.1 Significant variances between planned and actual projectimplementation occurred with respect to: (i) the implementation period;(ii) irrigation development component; (iii) rice intensification program; (iv)upland crop program; (v) sugar mill component; (vi) agricultural roadmaintenance; and (vii) technical assistance.

5.2 Implementation Period. Compared with a planned three-year period.actual implementation took almost six years. At project completion, most of theirrigation schemes were essentially incomplete. The project-installed sugarfactory was not yet in operation and still awaiting full commissioning. Theimplementation delay was anticipated by the first full supervision mission inSeptember 1984 which reported: "It is clear that due to the difficult operatingconditions in Lao PDR. this project cannot be completed by the current completiondate of December 31. 1986... The appraisal estimate of a 3-year implementationperiod was not realistic."

5.3 As under the preceding projects, ARDP I. II and III. the delay wascaused mainly by Government indecision (reluctance of officials to take decisionsand a generally protracted decision-making process) and a very weak institutionalbase (shortage of trained manpower). This was fuiher aggravated by a conceptualchange in the irrigation component (see para. 5.4) and problems encountered inthe recru_tment and quality of TA (see paras. 5.10 and 11.1).

5.4 Irrigation Development. This componen4 was considerably delayed anddeviated from the concept at appraisal. At appraisal the standard of preparationof the irrigation component fell short of the Bank'c normal appraisal requirement(para 4.2). This deficiency was addressed by introducing a condition that theGovernment would furnish to the Bank, by November 1 each year. plans and designsdetailing irrigation works and their location for the coming year so that theBank could give its approval prior to construction. However, this flexibilityhad the unintended effect of causing a deviation from the appraisal concept anddelays in project implementation. At appraisal, irrigation construction (17schemes) and pump repair were limited to schemes in Vientiane province while thefour other provinces were to be provided only with instruments and drawing officeequipment for the survey and design offices of the Irrigation Departments toenhance their capability to undertake future projects. During implementation,the Government wished to broaden the project to include construction of schemesin the other four provinces. The effect of this change was to delay projectimplementation by more than two years due to the time needed for decisions on theschemes to be financed, for finalizing a new equipment list and tenders forequipment, and for consulting provinces about inclusion of schemes in the projectand budgeting of local funds needed for construction. An important factorresponsible for the delay in implementation of the irrigation component was theweak management capacity of the Ministry of Agriculture (MOA), which was dilutedfurther during the project period because of decentralization of responsibilitiesto the provinces (see para. 9.3).

5.5 There was no disbursement for this component in 1985 and 1986, thatis, for two years after credit effectiveness. Construction was inevitablydelayed by the late arrival of equipment. By early 1990, major construction workwas completed on some 11 irrigation schemes with a total target area of 5.255 hafor the wet season and 4,300 ha for the dry season (see Part III, Section 4.Project Implementation). However, the quality of irrigation works in someschemes is unsatisfactory. Based on available information, about 900 ha had beenadded to the wet season irrigated areas and about 820 ha to the dry season areasby end 1989 through actions financed under the project. If the distributionsystems from the presently completed main and secondary canals to the farms werecompleted, these areas would be increased several fold. At appraisal it wasenvisaged that farmers would contribute significantly to tertiary networkconstruction. This has not happened, due in part to the lack of effectiveagricultural extension at farm level. The subcomponent for repair andmaintenance of some 1,200 existing small irrigation pumps was not implementedsince the Government decided to leave pump repair to private workshops.

5.6 The rice intensification psorram provided for further strengtheningof farm inputs and equipment distribution services of the Department ofAgriculture (DOA) in continuation of the support previously included underARDP I, II and III. As under ARDP III, implementation was delayed. The mainreasons for this were: (i) the use of chemical fertilizers was discouraged by DOAas, until 1985, national policy was to promote organic fertilizers; and(ii) there were no effective agricultural support services to undertake the

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program. L About 2,100 and 1,700 tons of fertilizers along with other inputsand equipment were imported under the project in 1988 and 1989. respectively.This was lower than the appraisal target of 3,678 tons by 1986 since theGovernment wanted to import more farm equipment than inputs and, in any case, theappraisal figure included an unspecified tonnage (presumably about 1,000 tons)to be imported through bilateral sourcees. The hectarage covered by theinputs and equipment imported under the project is not known since these weredistributed to farmers without systematic monitoring and evaluation. It wasanticipated under the project that the MOA would recover the cost of inputs fromthe farmers in kind, but this was never done because of an inadequateadministrative capacity to do so.

5.7 The upland crop nrotram initially faced difficulties in obtainingexternal funding for procurement of farm inputs because no such provision hadbeen made due to an oversight. In 1988, following the Government's request, theOPEC Loan was amended so as to provide financial support for the implementationof the program. Thereafter, as the December 1988 supervision mission reported,there was "dramatic" and "remarkable" progress in the upland crop program.However, this was confined to maize for which the area increased from 1,550 hain 1987 to 2,700 ha in 1988 and 3,050 ha in 1989 (compared to the appraisaltarget of 1,600 ha for 1986). The c64sava program (37 ha) fell far short of theappraisal target (900 ha) due to low demand from the country's only feedmill (ThaNgone) and insufficient drying facilities. Sugarcane planted area so far (about145 ha) is low, mainly because the construction of the project sugar mill wasdelayed, but is expected to pick up over the next two years to meet therequirements of the mill (about 20,000 tons of cane or about 500 ha). It shouldbe noted that the IDA supervision missions discouraged the establishment of sugarmill plantation and instead favored cane production by the farmers. Though notincluded at appraisal, soyabean was later financed under the project and reached500 ha by end 1989. The introduction of leucaena (18 ha) was also successful.

5.8 The sugar mill comDonent was initially delayed due to the Government'sindecision on the need for the component, as designed, and on the establishmentof a clear institutional framework for sugarcane production and contruction ofthe sugar mill. Eventually, both tasks were assigned to the VientianeMunicipality. Further delays occurred due to a controversy regarding thedesirability of plantation white sugar vs. refined sugar and a lengthy processof preparation of mill technical specifications and bid documents, completed onlyin mid-1987 through consultant services which had not been envisaged atappraisal. The plant finally installed in 1990 after a three-year delay had anannual capacity of 2,000 tons of plantation white sugar, instead of 1,000 tons

1/ A mid-term evaluation team for the UNDP-Integrated Agricultural Development Projectcomented in 1987: "Farmers were not deriving any benefit from the project (DOA's riceintensification program) due to the virtual absence of extension activities and support inthe project. There was no mechanism for technology transfers."

2/ The staff appraisal report (SAR) and Project File only indicate the amount of IFAD loan forthe component. Neither the quantity nor the unit cost of fertilizers to be imported northe area to be covered under the loan are indicated.

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envisaged at appraisal. The bigger plant, though still a mini sugar mill, wasconsidered to bo more economic. The mill had a trial run in 1990 and comuercialproduction started in 1991 under a management agreement concluded by theGovernmont (after credit closing) with the Australian company which installed theplant. The need for continued expatriate management hod not beon foreseen atappraieal. The agreed total cost (US$1.0 million over 5 years) is rather highfor a mini sugar mill and has important implications for the mill's financial andeconomic viability (see paro. 6.2).

5.9 The aarigultural roads maintenance program changed from annualmaintenance to * high.r standard of maintenanco, including completo reconstruc-tion or new construction works in some areas. The actual figure of 289 km atproject completion is, therefore, not comparable with the appraisal target of480 km. The appraisal mission had not been able to visit the project areas inVientiane province because of lack of time and severe logistical constraints.The mission was given to understand that the scale of work was similar to thatobservable in Vientiane Municipality. However, subsequent missions observed themore difficult conditions in the foothills of the Province and the need forbridging the many streams in that area. The significantconstruction/rehabilitation work undertaken (necessary prior to the adoption ofregular maintenance envisaged by the project) was the reason for the "maintained"road length falling short of the appraisal target.

5.10 The technical assistance envisaged under the project (para. 3.2 (h))was expected to have a very important bearing on successful implementation anddevelopment of Government institutional capacity and operating procedures. Theproject was to employ seven consultant specialists for this purpose (see PartII. Section 4. Project Implementation). Of these. only two (warehousemanagement specialist and sugarcane expert) were actually recruited through FAOand the others were not hired, principally because expatriate skills in somearess, e.g. inventory control, standardization, and budget/programing, were notconsidered necessary by the Government during project Implementation. TheGovernment also pointed out the difficulty in finding suitable counterparts forTA specialists, budgetary constraints on local expenditure, and its preferenceto spend scarce foreign currency on training local people rather than bring inexpensive foreign experts (also see para. 11.1). The funds for TA under the IPADgrant were, therefore, reallocated to training of local personnel.

6. Project Results

6.1 Overall, the project was marginally satisfactory. Results of five ofthe six physical components, accounting for about 70 percent of projectinvestments, were mixed; for the sixth, viz. irrigation development, a judgementon the results is extremely difficult at this stage since the schemes were invarious stages of development at project completion (para. 5.5), and data onactual costs for each scheme and cost and time required for additional works tocomplete the schemes are not available, though the data provided by the HOA onareas developed (see Part IIX, Section 4, Project Implementation) and paddyyields in some schemes (3 to 3.5 tons/ha) are encouraging. The institutionalimpact of the project was negligible, with only partial implementation of the TA

component (par**. 5.10 and 9.2) and froquent chante. in responsibilities of theproject implementing agencies (paras. 4.4 and 9.3).

6.2 Because of data constrainto, an ex-post re-evaluation of the economicimpact of tho project at completion was possible only for the sugar productionand processing component. The economic rate of return (ERR) for the componentis about 10 percent, despite the fairly high expatriate management costs (para.5.8). If these costs are reduced to US$120,000 per annum over 1991-95, the ERRimprove. to about 11 percent. If t:hesa costs were zero (a at appraisal), theERR would be about 12 percent. Details of ERR calculations are at Annex 1. TheERR at completion is lower than at appraisal (19 percont) principally because theestimated economic price of US$450 per ton of sugar is much lower than theappraisal projection of US$590/ton in 1989 constant dollars (US$432/ton in 1983constant dollars).

6.3 While adequate data for other components is not available to allow adetailed economic re-evaluation, some qualitative and quantitative judgements arepoosible. The agricultural roads maintenance component (ERR not calculated atappraisal) is considered to have provided a significant stimulus to developmentin the areas opened up by rehabilitation of the access roads. Warehouses (ERRnot calculated at appraisal) were satisfactorily constructed and, as reported bythe April 1988 supervision mission, vehicles and equipment for the warehousingcomponent were in full use, transporting about 5.000 tons of cement and steel and30,000 tons of fuel per year. A saving in cost of over 20 percent had beenachieved compared with previous handling methods. The upland crop program wasquite successful, except for the small cassava subcomponent (para. 5.7), and thebenefit/cost ratio is likely to be greater than 1.0 (1.6 at appraisal). The riceintensification program, despite its problems (para. 5.6), is also likely to havea B/C ratio greater than 1.0 (1.9 at appraisal), given the current input/outputprices and if the paddy yields are actually 3 to 3.5 tons/ha, as roughlyestimated by the provincial agricultural offices.

6.4 A judgement on the Tha Ngone feedmill component is more difficult.As envisaged at appraisal, essential feed ingredients were imported and thefeedmill's capability was strengthened with the addition of soyabean, ipl.l-ipiland corn cob processing facilities and cassava drying slabs. These facilitieswere expected by the December 1988 supervision mission to have a very significantimpact on feed quality improvement, cost reduction through virtual eliminationof imported raw materials and increased local production of these materials.These expectations have so far been only partially met. Local production,particularly of maize, has increased and feed cost is somewhat reduced due tolower imports of raw materials. However, the biggest problem faced by thefeedmill in 1989 and 1990 was competition from the imported Thai feed, which hadcaptured about 50 percent of the market as it was perceived by the end-users tobe of higher quality. Tha Ngone's feed production declined to about 3.200 tonsin 1989 (likely to be less than 3.000 tons in 1990) from a high of 6,o00 tons in1982. The feedmill is taking steps to overcome the quality problem, real orperceived. It is also switching from higher-priced feed rations to low-costrations (maize meal and cassava meal), which are better suited to Laotianconditions. The mill was barely profitable in 1989 (a pre-tax profit of K 16.7

9 -

million on tot-l sales of R 489.6 million) and that also because of heavilysubsidird intorest charges on working capital, mostly borrowed from theGovernment earlier. To remain profitable, the mill has to make a strongmarketing effort to improve or at least hold its share in the high-value rationsmarket while, at the same time, expanding its sales of low cost rations. For theoment, the results of this project component are judged to be on the borderlineof success and failure.

7. Proiect Sustainability

7.1 Project sustainability at this stage is uncert-in. It can be assuredif cortain actions are undertaken. The irrigation schemes supported under theproject are mostly incomplete and the availability of funds to complete themremains uncertain, in view of the current tight financial situation of theGovernment and its new policy of transferring irrigation schemes to farmers. Itis essential that the viability (technical as well as economic) of each schomebe assessed before additional investments are undertaken. Greater farmerinvolvement in tertiary canal construction and gradual takeover of schemeoperation are also necessary to improve the prospects of sustainability of theirrigation component.

7.2 For the sugar mill, an adequate supply of sugarcane is critical. Thiswill largely depend on the sugarcane prices which the mill can offer to canegrowers, which, in turn, will depend on efficient and cost-effective managementand success in obtaining working capital requirements.

7.3 Rural roads in Vientiane province constructed/rehabilitated under theproject are generally in satisfactory condition, having received adequatemaintenance from the project-established units. In order to maintain the presentlevel of activities, it is essential that an adequate recurrent budget continueto be provided to the maintenance units. The Tha Ngone feedmill has to make astrong marketing effort in order to remain profitable (para. 6.4). The riceintensification and upland crop programs are also sustainable, given fertilizeravailability and continued research/extension support.

8. Bank Performance

8.1 The appraisal mission was careful in designing the project managementframework, learning from experience with ARDP I, II and III. However, it did notadhere to the Bank's normal appraisal requirement for the irrigation component(see paras. 4.2 and 5.4) and it was also unduly optimistic in phasing the projectperiod over only three years (see paras. 4.1 and 5.2). While the Bank can becriticized for the extensive nature of the irrigation component and the multi-component nature of the project, it should be realized that the Government wasfaced with demands for assistance from provinces, which had previously benefittedvery little from IDA funding, and a smaller project was, therefore, not thepreferred alternative.

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8.2 The Bank superviaion muissions faced many difficulties throughoutthe project period,/ some of which stemied from the non-recruitment andvariable quality of TA (ee para 5.10). Moreover, while the project wasintensively supervised in the sarly years from the Bangkok Regional Mission(RMB), with visits increasing to seven in 1986, the frequency declined to twomissions a year after mid-1987, when the supervision responsibility shifted fromRMB to Washington as a result of the Bank's reorganization. This hadparticularly adverse consequences for the Irrigation, rice intensification, andfeedmill components, which needed intensive supervision. Under the circum-stances. the Bank staff performed well, concentrating on procurement and gettingall equipment in place before credit closing. However, from their base inBangkok and later Washington. they were powerless to overcome the day-to-dayimplementation problems. Frequent supervision cannot compensate for inadequateproject management.

8.3 From the Bank's point of view, the lessons which can be learned arethe following:

(a) hurried project processing (para. 4.2) without adequate preparation(such as for the irrigation component) is likely to create seriousproblems during project implementation;

(b) the implementation period proposed should be longer, or alternatively.an appropriately modest project scale and range of components shouldbe adopted, in keeping with the implementation capacity of theborrower; in particular, the concept of time-slice funding isinappropriate when institutional problems are severe;

(c) the contracting of technical assistance services, if these have beenidentified as critical to the overall success of the project, shouldbe ensured; and

(d) intensive supervision is necessary at all stages, when countryconditions are as difficult as in Laos.

9. Borrower Performance

9.1 The performance of the borrower in the early phases of the project,prior to implementation, is not well-documented in the files. The limited recordindicates that the preparation report was produced by the Bank with very littleinput from the Government but that no major disagreements emerged at negotiation.

9.2 There were, however, considerable disagreements, particularlyregarding the irrigation, sugar mill and TA components, during project imple-mentation. Added to these were weaknesses in project management and inadequate

3/ Tho Bank supervision missions usually covered three to four projects (ARDP I, 11, III andAPSP), and these projects contained more than 15 discrete components spread over fiveprovices. ARDP II and III were particularly trouble-prone, occupyizg most of thesupervision effort.

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coordination among Implementing agencies. The main problems affectingimplementation were: (i) time-consuming decision-making processes in theGoverrnent; (ii) frequent changes in the responsibilities of the projectimplementing agencies- and (iii) shortage of trained manpower. Only part of theTA component was implemented (para. 5.10). It seems that there hao been almostno improvement in the Government system of accounting and recording projectimpl m ntation since the inception of ARDP I (1978).

9.3 A significant problem during project implementation was posed by thechanging policy environment, particularly the decentralization of responsi-bilities to the provinces, which diluted further the already weak managementcapacity of the MNA. During decentralization, the central institutions werewound down while responsibilities were devolved to the provinces withoutproviding them with the capability in terms of trained staff and other supportmeasures required. There was thus a hiatus. The Irrigation Department of theMOA. as much or more than any other Department, suffered from this lack ofstability and collapse of management support. Parallel weaknesses in otherproject components (except, perhaps, the rural road maintenance component underthe management of the much stronger Ministry of Transport) can also beattributed, in part, to this period of uncertainty. While inadequate managementcapability was recognized at appraisal and attempts were made to compensatethrough the TA component and location of project management within the SPC, theexpectation at that time was that existing structures and institutions could bestrengthened, not that the dissolution of the whole system was imminent. Therecent IDA-assisted Upland Agriculture Development Project (Cr. 2079-LA) isgeared much more to development of basic infrastructure for agriculture at theprovincial level in recognition of the developments described above.

9.4 From the borrower's point of view, an important lesson (apart from thelessons in para. 8.3) is that it is necessary to study the impact of major policychanges at the macro level on the operation of individual enterprises and toformulate plans for their survival in the adjustment phase (para. 2.3). Anotherlesson i. that decentralization, if not accompanied by appropriate supportmeasures, can create considerable dislocation and uncertainty (para. 9.3).

10. Project Relationshi,

10.1 The Bank-borrower relationship was generally satisfactory. Thefrequent visits by the RMB staff (para. 8.2) particularly facilitated betterunderstanding and closer coordination. Relationship of the Bank and the borrowerwith other relevant agencies including IFAD. UNDP. OPEC and FAO. were alsogenerally satisfactory.

11. Consulting Services

11.1 There were problems in recruiting TA experts of an appropriate caliberbecause many top specialists were reluctant to work in Laos. The performance ofthe warehouse management specialist (para. 5. 10) was not considered satisfactoryby all concerned. However, the sugarcane specialist performed well and did someuseful work in sugarcane breeding.

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12. Proiect Documentation and Data

12.1 The description of project components given in the SAR was relativelypoor, particularly with regard to physical targets. implementation schedules andost estimates for each component, as compared with the SARs for ARDP I. II andIII. Some of the project conditions were not realistic for the borrower tofulfil, particularly thoas relating to project accounting and auditing, becauseof a very low institutional capacity.

12.2 The supervision reports and the relevant project documents availableat the Bonk contained generally adequate information for preparation of the PCR.However, some data such as actual costs of components and key indicators requiredto complete Part III tables, particularly those relating to financial andeconomic analysis, were not properly and consistently recorded in the supervisionreports and were also not available in the field. Development of adequateproject data bases requires special emphasis in the ongoing and futureagricultural projects in Laos.

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PART II

Parts I and III of the PCR were submitted to the Government. Nocoents have been received.

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PART III

1. Related Bank Credits

Year ofCredit Title Purpose approval Statue Co mentso

1. The Flirst Agric. To caset Dec 77 Closed PCR issuedRehab.& Develop- Government's offort Sep 85 may 88ment Project to achieve self-(Cr. 760-IA) sufficiency In food

production./a

2. The Second Same as above /b June 79 Closed PCR isuedAgric. Rehab. Dec 86 Oct 89DevelopmentPr_Ject (Cr.924-LA)

3. The Third Agric. Sm aas above /c May 80 Closed PCR underRehabilitation & June 88 preparationDevelopmentProject(Cr. 1021-La)

/a Cr. 760-LA supported mall-scale irrigation development, pig unltiplication and riceintensification.

/b Cr. 924-LA supported improved rice seed and foodgrain production.

/a Cr. 1021-LA supported improved rice milling, coffee development, workshop development andrice intensification.

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2. Pproect Timtable

Date Date DateIte" planned revised actual

Identification n.a. nUa. 1982Preparation na. na. 1982Appraisal n.a. na. February 1983b gotiations May 1983 - May 14, 1983Board Approwal June 1983 - June 28. 1983Credit Stgn ture January 1984 - January 10. 1984Credit ffectivensses March 1984 September 1984 Sept. 18. 1984Credit Closing June 30. 1987 n.a. December 31. 1989Project Completion Dec 31, 1986 May 31. 1989 March 1990

Catments

Docunents related to project identification and preparation are not available in theBank's project files. Issues raised at appraisal (Issues Paper and Decision Memorandum) includes

(a) Whether the Bank should act as executing agency for IFAD-financed technicalassistance as requested by IFAD (a significant departure from its usual role ascooperating institution);

(b) Role and capacity of the State Plannlag Committee designated to be responsible foroverall execution of the project, to be further discussed prior to negotiations;

(c) Tight project processing scheduleg

(d) Nead to specify the geographical location in vhich the various project items vould beutiUwed.

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3. Crodit DiaburseMUSS

Cuulativ. gttlmted and Actual Dlaburseunts

FY84 FY85 Fn86 FY87 FY88 F689 FY90(US$ million)

Appraisal Estimatu 0.3 1.2 3.4 5.6 6.2 6.2 6.2

Actual - 0.4 0.8 3.8 4.2 6.9 7.2L

Actual as I of Estimato - 33 24 68 68 111 116

Date of Final Disbureemnts March 12, 1990

Bl Higher disbursement amount (US$7.146,601) due to changes in the value of SDR (IDA credit wasSDR 5. 8 million)

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4. Project Ile montation

Iliul:T rtAt/c Actual end 1989/c Before Pro1ect/eKey Iwdlcatore Wet Dry wet Dry wet Dry

(ha)

Small-Scale Irri tlonSunort (about 3.600 ha) La

Vientiane MuniecialltvDin Phao - 600 ha , 600 600 458(489)jd 62(123)/d 300 0

Vientin ProviPam - 320 ha X 320 300 188(291) 53(84) 62 0Pakkayoung - 300 ha b 300 300 295(298) 92(263) 300 0Thad l - 300 ha b 300 172(264) 91(231) . 0

Savanuankht ProvincTonhen - 550 ha Lb 550 500 493(532) 95(475) 458 0Sakhouang - 400 ha k 400 200 249(334) 37(78) 225 0Soul - 400 ha Lb 85 400 52(81) 248(395) 1S 62

Saravane ProvinceNona Dens - 400 ha j 400 200 297(355) 91(128) 237 5Long Mone - 400 ha b 400 300 351(388) 52(212) 315 23

Chawmasek ProvinceToo - 600 ha Lb 600 400 403(591) 98(277) 125 5

Khlamrmne ProvlncThathod - 1.300 ha b 1,300 800 297(798) 0(214) 257 0

Total M 4.300 3.255(4.421) 919(2.480)2.349 95

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Unit Appralsal Estmate , Actual

B. Croy Productlon Support

(a) lice IntensiflctionLimited packaget- Rainfed ha 71.500 na.

- Irrigateds vat season ha 20,000 n.a.

dry season ha _.QO V.

Subtotal ha 94,500 n.a.

lull package:- Irrigatodx vet season ha 16.000 n.a

dry seaaon ha 6 0000 n

Subtotal ha 2200Q n-a

Total ha 1165 5C0 n f

(b) Unland Crop Production SupportMaize ha 1,6C0 3.050 LZCasava ha 900 37 LSugarcane ha 400 145 LZ

Cc) Sunuort for Develoament ofResearch and ExtensionFinance for equipment USS m 0.35 n. . /h

C. District Atricultxral RoadNsdntenenc

Road Brigadc No. 1 Km/yr 160 144 /1No. 2 Km/yr 150 25 /L

No. 3 Vm/yr 170 120 L1

Total 42 289 Li

D. Livestock Feod Processint Sunnort

Fnan ce for Imported feed US$ 1,264,000 1.078.989 LiSmall-scale equipment US$ 1,096,000 1,200,000 Li

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Unit Appraisal Estimate g Actual

E. Susrcane Production and ProcessintSupnoat

Sugar mill, vehicles & equipment USS m 1.57 2.53 aYear of comissioning Year 1987 1990Output Ton/yr 1,000 0 Ik

F. Support for Warebouslax

Construct nev warehouses No. 8 8Associated equipment & vehicles USS m 2.0 2.3

G. Technatal Assistance

TA long-term:- Budget/programing SD/ 24 0- Warehouse management rn/a 24 24- Sugar production specialist m/m 24 36

Total n 60

TA short-term:- lnventory control rn/M 3 0

- Standardization t/rn 8 0- Procurement rn/m 6 0- Auditing/Accounting rn/a 9 0

Total 26 0

/a SAR figure.lb Final list supplied by the Irrigation Department. HOA, Vientiane.Lb Source: Irrigation Department, MOA, Vientiane.4d Figures In parenthesis are projections for 1990 by the Irrigation Department, NOA, Vientiane.

1e Target for 1986 given In the project file. No target given In SAR except G. Technical Assistance.II S9e para. 5.6 of Part I.jg 1989 data for maize ara cassava (Source: Tha-Ngone Feed Mill). 1990 data for sugarcane (Sources

Pak Sap Sugar Mill). In addition, soyabean cultivation, not included at appraisal but laterfinaneed under the project. reached 500 ha (production 400 tons) by end 1989 (Source: Tha-NgoneFeed Hill).

/h The fund was reallocated to finance the laboratory building at Na Phok National Research Centerbecause the proposed development of Champassak and Savennakhet research stations did notmnaterialize.

Li Roadvorks changed early in the program from annual maintenance to complete reconstruction or newconstruciton on a "once-only basis and the figures are, therefore, not comparable to those atappraisal.

a sources IDA disbursemnt records./k Trial run was In 1990. Comercial production started in 1991, under a managemnt agreement vith the

Australian company whlch Installed the plant. Full capacity output will be 2,000 tons/yr.

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5. Project Costs and Financina

A. Prolect Costs

ADrO 8isal EstiMat / Actual /bItem Local Foreign Total Local Foreign Total

(US$ million)

Small-scale Irrigation 3.62 4.13 7.75 1.00 5.20 /c 6.20

Crop Production Support- Rice Program 0.52 2.45 2.97 0.20 3.50 /c 3.70

- Upland Crop Program - 0.86 0.86) - 0.88 0.88

- Equipment for Research - 0.37 0.37)

District Agricultural RoadMaintenance 0.45 2.30 2.75 0.30 2.23 2.53

Livestock Ieed ProcessingSupport 0.31 2.36 2.67 0.15 2.28 2.43

Sugarcane Production andProcessing Support 0.36 1.21 1.57 0.49 2.53 3.02

Support for Warohousing 0.75 3.71 4.46 0.50 2.32 2.82

Technical Assistance andTraining 0.10 1.27 1.37 0.05 0.89 0.94

Total 6.11 18.66 24.77 2.69 19.83 22.52

La Including both physical 6ad price contingencies; these contingencies for each component, except

small-scale Irrigation and crop production support components. were estimted on a pro-rata basis

since component-wise cost estimates given in the SAR project file (working papers) do not contain

stimated contingencies. It should be noted that some of the cost estimates (crop productionsupport and feed mill components) do not agree with those given in the SAR.

jb Based on IDA, 1FAD, and OPEC disbursement records. However, local cost estimates are highlytentative since consistent Government data are not available. The local cost figures for appraisalshould be interpreted with caution as they are based on the official exchange rate of Kip 10 - US$1.

/c Estimated amounts disbursed under the IFAD Loan (130-LA).

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S. Prolect linencinn

Source Plannsd Expected Final(USs million)

IDA Credit 6.2 (25) 7.2 (32) Lt

IAD Loan/Grant 7.4 (30) 9.2 (41) J&

OPEC Loan 3.1 (13) 3.1 (14)

UNDP 0.9 ( 3) 0.4 ( 2)

Domestic 7.2 (29) 2.6 (11) /b

Total 24.8 (100) 22.5 (100)

LS Increases In IDA Credit and IrAD Loan/Grant are due to changes in SDR value. The clositg dateof IrAD Loan/Grant iL March 31, 1991. OPEC loan closed on April 30. 1990.

,'b No goverument records of expenditures are available and highly .entative estimates have beenmade.

E. Pro1ect Results

A. Direct Benefits

Full DeveloumentIndicators Appraisal Estimate PCR Estimate /g

1. Total Beneficiaries 60,000 farm households cannot be ascertained

2. Incremental Annual Outputt- Paddy 38,000 tons cannot be ascertained- Maize 3,000 tons 5.500 tons (1989)- Casava (dried) 5.500 tone 300 tons (1989)- Sugar 1,000 tons 2,000 tons- Concentrate feed for

pigs and poultry 10,000 tons 3,200 tons (1989)

3. Incremntal Employment ofFarm Labors

- Crop production 1 4 million man-days cannot be ascertained- Livestock product 185.000 man-days cannot be ascertalned

2 Z3 -

D. Economlc IMuact

Economic Analysis Appraisal Estimate PCR Estlmate /

1. Irrigation (welr) 16.4S ERR cannot be aseortained

2. Irrigation (pumping) 20.3: ERi cannot be ascertained

3. Irrigation (rehabilitation) 17.92 Eli cannot be ascortained

4. Sugar mill 19.02 ERR 9.86 ERR

5. Rice Intensification Program 1.9 B/C ratio likely to be 1.0

6. Upland Crop Program 1.6 B/C ratio likely to be ;1.0

7. Livestock Foed 1.1 B/C ratio likely to be 21.0

See section 6 of Part I.

C. Financial Imuact

Appraisal PCR /aImpact on Farm Budgets Estimate Estimate

1. Rice Intensification Program(Incremental net return/man-d.y)(Z increase with project)

- Rainfed paddy fasm 112 cannot be ascertained- Irrigated fasm (limited package) 112 cannot be ascertalind- Irrigated farm (full package) 312 cmnnot be ascertained

2. Financial Analysl for PigFattening Farms

- Model 1 (purchased feed) 402 IRR)- Model 2 (household waste) 2882 Iln) not calculated- Model 3 (state farm) 212 IRR)

/a See section 6 of Part I.

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D. Studies

No study component was includsd under the project.

7. Status of Covenants

Deadline forSection No. Covenant Compliance Stetus

4.02(a) Retain a Project Coordinator - Compliance /awithln the State PlanningComittee

4.02(b) Appoint management and staff Prior to Compltancefor the sugar mill completion of

construction

4.03(a) Retain specialists to be Partial ComplianceMi) provided by FAO

4.03(a) Employ short-term technical - Not Complied with11) advisers through consulting

firm

4.05(a) Plans, *specifications, As needed Partial Compliancereports, contract documentsto be furnished to IDA

4.05(b) Record and monitor project Partial Complianceprogress, and furnishprogress reports regularlyto IDA

4.05(d) Prepare a Project Completion Not later than 6 Not Complied withReport months after

credit closingdate

4.07 State Planning Coumittee to Not later than Partial Compliancefurnish following to IDA: April 1, 1984 and(a) irrigation plans & each November 1.designs, and (b) annual work thereafterprograms and budgets foreach subproject

5.01(c) Have financial statements Not later than 6 Not Complied withand accounts audited and months after thefurnish to IDA audit report end of each

fiscal year

5.02 Establish and thereafter Complied withmaintain prices for after theprocessed feed, fertilizers, introduction ofmachinery services for land the New Economicpreparation, and weaner pigs Mechanismat levels which shall enableresponsible agencies torecover the fiaancial costthereof.

/a Project Coordinator Is now in the Ministry of Finance, Economy and Planning because ofdissolution of the State Planning Cosmittee in 1988.

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8. Uss of lank Resources

A. Staff Inputs

St&a& of Project Cycle Planned Revised F1nal(man-weeks)

Preappraisal La n.a n.e.) 11.8

Appraisal n.a. n.a.)

legotiations n.a. n.a. 9.4

Supervision n.e. n.a. 80.1

PCR n.a. n.a. 12.0 (get.)

Total n m n.c.113.3

/m Including identification and preparation.

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B. Missions

Month/ No. of Days in Specialization Performance Type ofMission Year Persons Flld /a Represented Lk Stetus Ls Problem Ld

ldentification 1982 n.& na. n.a --

Preparation 1982 na. n.a. n.a --

Appraisal Feb 83 5 16 AG, AG. EC. SC. EC EC -Interim Superrn. fov 83 2 1 AG n.a. n.a.Interim Supervn. Feb 84 1 1 AG n.a. n.a.Interim Supervn. Mey 84 1 4 AG n.a. n.a.Supervision I Sep 64 4 4 AG, AG, WC, AEC n.e. n.e.Interim Suprvn. Dec 64 1 2 AG n.a. nUe.Supervision 2 Feb 65 4 7 AG, ARC PRQ. EG 2 M. P, TInterim Supervn. Jun 85 2 3 AG, PBQ n.e. n.&.Supervision 3 Sep 85 3 6 AG, AEC, EKG 2 na.Interim Supervn. lov 85 1 1 AG n.e. n.a.Interim Superwn. Jan 86 1 1 AG n.a. n.a.Supervision 4 Mar 86 3 6 AG, AEC, EHG 2 n.a.Interim Supevn. Apr 86 1 3 AG nU.. n.e.Interim Supervn. Jun 86 1 2 AG n.e. n.e.Interim Supervn. Sep 86 1 2 AG n.s. n.a.Supervislon 5 Oct 86 2 5 AG, ENC 2 n.&.Interim Supervn. Dec 86 1 3 AG n.a. n.a.Supervision 6 Mar 87 3 a AG, EC, EMG 2 n.a.Interim Supervn. Apr 87 1 3 AG n.a. n.e.Supervision 7 Sep 87 2 7 AG, ENO 2 n.a.Interim Supervn. Dec 87 2 7 AG, EC n.e. n.a.Supervision 8 Apr 88 2 7 AG, HUG 2 n.a.Supervision 9 Dec 88 2 10 AG, ENG 1 n a.Supervision 10 Jun 89 2 3 AG, ENG 2 n.e.Completion feb 90 3 11 AG, EC. ENG -

L Estimted by PCR mission based on records avellable in the Bank's project files. Allsupervision missions were undertaken together with supervision of other ongoing IDA-assistedprojects. No. of days in field for each Individual mission after Feb. 65 mission were notrecorted because of change in reporting format.

it Specielizations AG - Agriculturist; EC - Economist; ZUG Engineer; AEC - Agric. Economist;PRQ - Procurement Engineer.

Le Perforcmnce Rating: 1 - Problem-free or minor problems; 2 * Moderate problems;3 - Major problems.

Id Types of Problemss F - Financial; - Mawnagerial; P - Political; T - Technical. After Feb. 85supervision, types of problems according to the above classification were not recorded insupervision reports because of change in reporting formt. Hovever. menagerial and politicalproblems were almot always reported until the last supervision mission.

Ij In addition to these, a loan officer (IDA) and an IFAD representative participated in themdisson.

C. Costs

go date available on cost of staff Inputs broken down by each stage of the project cycle.

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Page 1 of 3

PROJECT COMPLETION REPORT

LAO PEOPLE'S DEMOCRATIC REPUBLIC

AGRICULTURAL PRODUCTION SUPPORT PROJECT(Credit 1395-LA)

Economic Re-Evaluation of SugarProduction and Proces sin Comnonent

Costs

1. All costs and benefits are in 1989 constant terms. The invostmentcost of the sugar mill (Pak Sap Sugar Mill). transport and farm equipment.Infrastructure, and pro-production expenses. are estimated at about US$3.0 mil-lion through 1989. The sugar mill was unstalled on a turnkey basis and costabout US$2.0 milliong transport and farm equipment about US$640,OCO;infrastructure, including earthwork, buildings, roads, electricity supply. etc.about US$200,000; and pro-production expenses (s&laries and wages, caneproduction investments, etc.) about US$160,000. The costs as shown In Table 1are based on IDA disbursement records and estimated local expenditures. Furtherinfrastructure development in 1991 and 1992 for seed cane farm irrigation, roadsto service farming areas and accommodation for field and factory staff isestimated to cost about US$50,000 and 100,000, respectively.

2. The expatriate management costs are about US$1.0 million over fiveyears, as shown in Table 1, and are basod on the projections prepared by theAustralian company with which the management agreement was concluded.

3. The mill-gate price for sugarcane offered in 1990 (for the trial run)was K 5,500 (US$7.86) per ton. For 1991, the mill-gate price will be K 8,000(US$11.43) per ton. The economic cost of sugarcane production and transport in1989 constant terms is estimated at US$6.00 per ton. Sugar recovery rate isassumed to be 10 percent.

4. Salaries and wages of local staff have been calculated on the basisof projected sugar output (see par-. 6 below). Information supplied by the PakSap Sugar Mill In October 1990 shows that there were 31 regular staff (4processing engineers, 4 mill workers, 12 tractor drivers, 7 extension staff, and4 administration staff) and the salary cost was K 6 million (about US$9,000) for1990. With the start of commercial production In 1991, additional workers willbe hired during mill operation. About 15 to 20 workers will be required per 8-hour shift or about 50 to 60 workers per day of 3 shifts. At full capacity, themill will be operating at 3 shifts per day for about 3 months. The workers'

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ANNEXPage 2 of 3

wages will be about K 2.000 per worker per 8-hour shift. For 1991 and lateryears, the salary cost of regular staff is aesum d to be K 10 million per annumin 1989 constant terms (about US$15,000). To this has been added the cost ofhired workers as follows:

1991 - 60 worker. per day for 25 days - K 3 million1992 - 60 workers per day for 50 day. - K 6 million1993 - 60 workers per day for 75 days a K 9 million1994 - 60 workers per day for 100 days - K 12 million

5. The coat of technical e-3sistance by the sugarcane expert (36 man-month.) has been excluded since the benefit. of the breeding work done by theexpert cannot yet be quantified. The coat of overseas training of Pak Sep staffhas been ignored as it is a minor amount.

Benefitg

6. A 20-year period of analysis has been chosen and the annualproduction of sugar is assumed to be as follows:

Production(tons)

1991 5001992 1,0001993 1.5001994-2007 2,000

This projection is based on the actual area under cultivation in 1990 (145 ha),which is likely to yield about 5,000 tons of sugercane in 1991. and the expectedbuildup of sugarcane area over 1992/93.

7. The estimation of the economic price of sugar for Laos is complicated.Laos has traditionally imported moat of its sugar requirements from Thailandwhere prices have been usually much higher than world prices. In September 1990.while the f.o.b. Caribbean prices were about US$280 per ton, the averagewholesale price of refined sugar in northeast Thailand was B 11.56/kg(US$460/ton) and in Bangkok B 11.58/kg. The retail price in Vientiane was aboutK 450/kg (US$640/ton) and wholesale price K 400/kg (US$570/ton). The duty (10percent) on sugar imported into Laos, and transport, handling and trading profitmargins will explain the difference in prices between northeast Thailand andVientiane. Since the Pak Sap Sugar Mill is producing plantation white sugar, ad_scount of about 10 percent on the refined sugar price in northeast Thailandshould be applied. With this discount, and excluding import duties of10 percent, the economic wholesale price in Vientiane is estimated at aboutUS$450/ton (the actual price at which the mill is planning to sell its sugar isK 400/kg or US$570/ton). The economic price of US$450/ton is less than the

- 29 -

ANNEXLIPage 3 of 3

projected world prices of US$379 and 363 for 1992 and 1993 in 1989 constant terms(World Bank, December 1990 projections), adjusted for frei8ht and other costs toVientiano, but somewhat higher than the projected prices of US$251 for 1991 andUS$288-314 ovor 1994-2005. adjusted for freight and other costs.

8. No benefits for molasses have been taken into account as there is noexperience with its marketing in Laos and it is extremely difficult to projectits future uses in the country.

Economic Rate of Return (ERR)

9. The ERR in the base case scenario is about 10 percent (Table 1). Ifthe expatriate management cost is reduced to US$120,000/yr. over 1991-95, the ERRimproves to about 11 percent. If there were no expatriate management costs, theERR would be about 12 percent.

Table a

PROJECT COMPLEMON REPORT

LO PEOPLEC'S DSCRTIC REMLIC

AGRICULTURAL PRODUCION SUPPOIT PROJECT(Credit 1395-LA)

Re-Estimation of ERR for Snur Production and Processian Componeat(US$ '°°)

1988 1989 1990 1991 1992 1993 1994 199S 199-2007

Coat.

SugEar Mil Iestmats.transport mid fereqipment, and pre-production expense 300 2.500 -

Infratructure investment 150 50 - so 100 - - - -Salaries and age - 2 9 20 30 35 40 40 40Expatriate management costs - - - 122 257 247 200 212 -SuSarcane production and

transport - - 15 30 60 90 120 120 120Maintenance of mill. equipment

and infratructure - - 10 50 75 100 100 100 100Total Costs 450 2-552 34 272 522 472

enef it. _ 225 0 90 00Net Benefits (450) (2.552) (34) 203 426

DUI a 9.8X

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'ANMAR( LA t-7AGRICULTURAL PRODUCTION SUPPORT PROJECT

MAP~~~EA~~\,~~ ( I ~VIENTIANE PROVINCE

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of any territory or any

suhbounldaries

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endorsefment or cceptance of51eh2 boundarie

, S,0 100 MILES y s J _ y~~~E

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LAO PEOPLE'S DEMOCRATIC REPUBLIC DTIAke

GRICULTURAL PRODUCTION SUPPORT PROJECT

ELEVATION IN METERS:

1,000 AND OVERSanahe

200-999

0-199

-160 6cPROPOSED ROADS- ~~~EXISTING PAVED ROADS

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